Grocery Outlet (NASDAQ: GO)
An interesting grocery business
Edit: I edited out some redundant word usage on 1/18/21. If you received an email about this please note there is nothing new in this writeup. I just cleaned it up a bit.
Grocery Outlet is a grocery store chain headquartered in the sprawling and sunny metropolis of Emeryville, California. As of the most recent 10-Q, the business operates 402 stores in California, Washington, Oregon, Nevada, Idaho and Pennsylvania. In the first three quarters of 2021 the business had revenues of $2.296 billion and describes itself as “… a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores. Our flexible buying model allows us to offer quality, name-brand opportunistic products at prices generally 40% to 70% below those of conventional retailers. Entrepreneurial independent operators (“IOs”) run our stores and create a neighborhood feel through personalized customer service and a localized product offering.”
Why This Write Up Might Not Be for You
Grocery store business dynamics – As you might have guessed from its name, Grocery Outlet operates in the grocery retail business. Competition in this space is tough to say the least and exclusively low margin. Product costs are high, lots of employees are required to work/manage a store and the stores themselves require large capital outlays and fat rental costs. It is very capital intensive. It’s hard to run any business, but exceptionally so to run a grocery store.
Boring business – Grocery retailing isn’t a sexy or niche business. They sell discounted food. I don’t foresee Grocery Outlet commanding huge pricing power or being able to increase revenues at high rates with minimal capital outlays.
Retail economics – To be a great investment, Grocery Outlet requires exceptional capital allocation, increases in same store sales and constant opening of new stores which are all tough to achieve.
TL;DR – I’m not long the stock nor does it meet my investment standards, but I do think it’s an interesting business to learn about.
Grocery Outlet History (The information in the paragraph below is taken from Wikipedia and the company’s website)
The precursor to Grocery Outlet was founded in 1946 by Jim Read. Mr. Read started out selling military surplus food and in 1970 the company (then named Cannery Sales) acquired Globe of California and changed its name to Canned Foods. The business’ first brand agreement was with Del Monte foods the next year in 1971. Canned Foods eventually started working with more and more brands and opened its first independent operator store in 1973. Mr. Read passed away in 1982 and his two sons Steven and Peter took over the business. In 1987, the business was renamed again to Grocery Outlet and finally to its current name Grocery Outlet, Inc in 2002. Along the way the company added fresh produce in 1999 and fresh meat in 2003. Store count rose steadily over the years to 100 in 1995 and currently stands at 407 as of the most recent 10-Q. Berkshire Partners, a Boston based private equity firm, purchased a majority interest in the business in 2009. The business was sold again when Hellman and Friedman, a San Francisco base private equity company, bought the business in September of 2014. The business went public in 2019 and Hellman and Friedman have since cashed out on their investment and no longer control the business. The company is now lead by Eric Lindberg who is the son in law of Peter Read. He was Co-CEO from 2006-2018 along with MacGregor Read who is the son of Steven Read. MacGregor is now Vice Chairman of the Board of Directors and Eric is the sole CEO.
What’s Interesting About Grocery Outlet?
Grocery Outlet’s “extreme value” (stated above in the introductory paragraph), sourcing model and IO Agreement are the factors that differentiate the business from their competition. Per their 2021 10-K:
“Our flexible sourcing and supply chain model differentiates us from traditional retailers and allows us to provide customers quality, name-brand consumables and fresh products at exceptional values. We take advantage of opportunities to acquire merchandise at substantial discounts that regularly arise from order cancellations, manufacturer overruns, packaging changes and approaching “sell-by” dates. As strong stewards of our suppliers’ brands, we are a preferred partner of leading CPGs with a reputation for making rapid decisions, purchasing in significant volumes and creatively solving their inventory challenges. Our buying strategy is deliberately flexible to allow us to react to constantly changing opportunities.”
I’ll give an example of a product that would be sold at a local Grocery Outlet. Let’s say there is a new movie releasing and a big budget studio has worked tirelessly to promote and market the movie. For example, we’ll use Spiderman: No Way Home. Often the studio will partner with a food brand and plaster Spiderman’s image and likeness all over anything from soda cans to bags of chips to yogurt, etc. Spiderman has since been released and there will be leftover items that haven’t been distributed by the food producer/supplier. If the price is right, Grocery Outlet will work with this producer/supplier and buy out as much of their remaining inventory as possible to sell at their stores at a huge markdown from its original price. This is essentially what Ross and TJ Maxx do, but for food instead of clothing and home items. Grocery Outlet is literally the only chain store at scale that I can find that does this. As a final note and per the Grocery Store Guy blog, only 20% of their products are available year round so the company is constantly changing their inventory.
The other interesting thing about Grocery Outlet is that it operates a little bit differently than their competitors too. They have what are called “Independent Operators” (aka IO’s) who run their stores. What the IO’s do is described on pg. 3 of the most recent 10-K:
“How we sell: Our stores are independently operated by entrepreneurial small business owners who have a relentless focus on selecting the best products for their communities, providing personalized customer service and driving improved store performance. Unlike a store manager of a traditional retailer, IOs are independent businesses and are responsible for store operations, including ordering, merchandising and managing inventory, marketing locally and directly hiring, training and employing their store workers. IOs initially contribute capital to establish their business and share store-level gross profits with us. These factors both align our interests and incentivize IOs to aggressively grow their business to realize substantial financial upside. This combination of local decision-making supported by our purchasing scale and corporate resources results in a “small business at scale” model that we believe is difficult for competitors to replicate.”
The business also lists their IO’s as one of their competitive strengths in their 10-K and goes into depth about what their agreement is with them. I think this deserves further attention because it gives insight into an aspect of what makes the business unique from other retailers that I’ve come across. Their IO Agreement on pgs. 7-8 on the 2020 10-K is shown below:
“IOs are independent business entities owned by one or more entrepreneurially minded individuals who typically live in the same community as their store and demonstrate a relentless focus on ordering and merchandising the best products for their communities, providing personalized customer service and driving improved store performance. The vast majority of the IOs operate a single store with most working as a two-person team. We encourage the IOs to establish local roots and actively participate in their communities to foster strong personal connections with customers.
We generally share 50% of store-level gross profits with IOs, thereby incentivizing them to aggressively grow their business and realize substantial financial upside. The independent operator agreement (the “Operator Agreement”) that we sign with each IO gives the IO broad responsibility over store level decision-making. This decision-making includes merchandising, selecting a majority of products, managing inventory, marketing locally, directly hiring, training and employing their store workers and supervising store operations to carry out our brand’s commitment to superior customer service. As a result, our IO model reduces our fixed costs, corporate overhead and exposure to wage inflation pressures and centralized labor negotiations.
IOs leverage our national purchasing network, sophisticated ordering and information systems and field support in order to operate more efficiently. We facilitate collaboration among IOs to share best practices through company-wide and regional meetings, our IO intranet and other online and informal communications.
This combination of local decision-making supported by our purchasing expertise and corporate resources results in a “small business at scale” model that we believe is difficult for competitors to replicate. Our collaborative relationship with the IOs creates a powerful selling model allowing us to deliver customers exceptional value with a local touch.
As of January 2, 2021, 375 of our 380 stores were operated by IOs. We have entered into an Operator Agreement with each IO, which grants that IO a license to operate a particular Grocery Outlet Bargain Market retail store and to use our trademarks, service marks, trade names, brand names and logos under our brand standards. The Operator Agreement, along with our Best Business Practice Manual, defines our brand standards and sets forth the terms of the license granted to that IO. IOs have discretion to determine the manner and means for accomplishing their duties and implementing our brand standards. The success of this licensing arrangement depends upon mutual commitments by us and the IO to cooperate with each other and engage in practices that protect our brand standards and the reputation of our brand and enhance the sales, business and profit potential of the IO’s store.
The vast majority of the IOs operate a single store with most working as a two-person family team. We believe this team approach leverages complementary operator skill sets resulting in a greater connection with customers along with improved store operations and service levels. The Operator Agreement provides that either the IO or we may terminate the Operator Agreement for any reason on 75 days’ written notice, or may terminate the Operator Agreement immediately for cause.
IOs are responsible for operational decision-making for their store, including hiring, training and employing their own workers as well as ordering and merchandising products. The IO orders merchandise solely from us, which we, in turn, deliver to IOs on consignment. As a result, we retain ownership of all merchandise until the point in time that merchandise is sold to a customer. Under the Operator Agreement, IOs are given the right to select a majority of merchandise that is sold in their store. IOs choose merchandise from our order guide according to their knowledge and experience with local customer purchasing trends, preferences, historical sales and other related factors.
IOs are able to uniquely display and merchandise product in order to appeal to their local customer base. IOs also have discretion to adjust pricing in response to local competition or product turns, provided that the overall outcome based on an average basket of items comports with our reputation for selling quality name-brand consumables and fresh products and other merchandise at significant discounts. IOs are expected to engage in local marketing efforts to promote their store and enhance the reputation and goodwill of the Grocery Outlet brand. To protect our brand and reputation, the Operator Agreement requires IOs to adhere to brand standards, including cleanliness, customer service, store appearance, conducting their business in compliance with all laws and observing requirements for storing, handling and selling merchandise.
As consignor of all merchandise, the aggregate sales proceeds belong to us. We, in turn, pay IOs a commission which is generally 50% of the store’s gross profit in exchange for the IO’s services in staffing and operating the store. Any spoiled, damaged or stolen merchandise, markdowns or price changes impact gross profit and therefore the IO’s commission. We generally split these losses equally with IOs. As a result, IOs are exposed to the risk of loss of such merchandise and are incentivized to minimize any such losses.
We lease and build out each Grocery Outlet location. Under the Operator Agreement, we provide IOs with the right to occupy the store premises solely to operate the retail store on the terms set forth in the Operator Agreement. The Operator Agreement specifies the retail store that the IO is entitled to operate, but it does not grant the IO an exclusive territory, restrict us from opening stores nearby, or give the IO preference to relocate to another store as opportunities arise. As the store tenant, we fund the build-out of the store including racking, refrigeration and other equipment and pay rent, common area maintenance and other lease charges. IOs must cover their own initial working capital requirements and acquire certain store and safety assets. IOs may fund their initial store investment from their existing capital, a third-party loan or, most commonly, through a loan from us (an "IO Note"). The IOs are required to hire, train and employ a properly trained workforce sufficient in number to enable the IO to fulfill its obligations under the Operator Agreement. IOs are responsible for expenses required for business operations, including all labor costs, utilities, credit card processing fees, supplies, taxes (i.e., withholding, contributions and payroll taxes and income taxes on commissions paid to them), fines, levies and other expenses attributable to their operations.
In a typical year, we field over 20,000 leads for prospective new IOs annually in pursuit of smart and entrepreneurially minded retail leaders to support our continued growth. After a robust screening and interview process, we select the top candidates to enter a rigorous Aspiring Operator in Training (“AOT”) program with the goal of potentially becoming an IO. AOTs receive on-the-job training as an employee of an experienced IO that applies to serve as a training store for us and teach the skills that they learned and now rely on to drive their own financial success. This gives AOTs the chance to experience first-hand what running a Grocery Outlet and managing employees will require. We supplement on-the-job training with classes at our headquarters, when available, and through online tutorials so that AOTs gain a thorough appreciation for an IO’s responsibilities and opportunities. Upon successful completion of the training program, AOTs submit business plans to apply for new stores as they become available. Those business plans generally include a competitive analysis of the local market, operational strategy, marketing plan and projected financial performance. Based on the strength of that business plan, including an AOT’s familiarity with the local market, we ultimately select an IO as new store opportunities open and facilitate the transition.”
If you took the time to read the text above, you can (in my opinion) see that Grocery Outlet ultimately retains control of their business effectively while allowing the IO’s to have a fair amount of freedom to run their stores. Additionally, there’s a few things in this agreement that I think stand out. The first is that Grocery Outlet try and source couples that live in the area where they want a new location. The application process is tough as the company says they field 20,000+ applications a year to run a store. If the IO’s make it through that amount of competition, then they’re already doing well. Grocery Outlet is picking from the cream of their crop.
Another interesting takeaway from the IO agreement are the layers of commitment embedded in being one. The IOs commit in three layers. First is the couple themselves; they’re already together and have committed to one another. Second, they have chosen, as a couple, to apply, commit to and be responsible for running this business. Third, financial commitment; they provide capital or get a loan to run the business. These three layers of commitment creates a powerful “buy in” effect in my opinion. The IO’s must buy in and commit not only to themselves but also to their business. I think this is a powerful mechanism and creates a positive economic outcome more often than not when done right. I don’t know if the executives of Grocery Outlet foresaw this, but I think it’s clever.
A third interesting takeaway is that their agreement with Grocery Outlet is an even split of gross profits and losses which encourages them to keep an eye on their operations. Every dollar of shrink takes money out of their wallet. Their local roots are also important too. This is the fourth and final interesting take away from the IO Agreement. Being local, the couples most likely know the area and customer tastes better than a centralized team in another state would. They also are encouraged provide personalized customer service which counts for a lot in retail. Helpful customer service is such a basic thing that provides a positive, high leverage outcome. For those of you who are skeptical about this I would recommend you go to most retail stores regardless of what they sell and then compare that experience to REI, Trader Joe’s, Publix or Wegman’s. The latter wins every time.
Slide 21 from the March 2021 Investor Presentation states that this IO model/agreement reduces the fixed costs for Grocery Outlet:
The company believes this unique operating model allows them to “Out Chain the Locals, Out Local the Chains”. Other benefits of this agreement between Grocery Outlet and their IO’s are shown below. As you can see, each party is responsible for certain operational and financial agreements. This slide is taken from slide 20 of their March 2021 Investor Presentation:
Other Interesting Takeaways from Grocery Outlet
Per their March 2021 Presentation, the company has increased comparable same stores sales growth for 17 straight years at an average rate of 5.6%. This is an impressive any way you slice it. The business targets annual store growth of ~10% per their March presentation. Combine the comparable stores increases with store growth along with the fact that they’re only in six states and you can see that Grocery Outlet has a long runway for growth and expansion. I think they’ll be able to do this because the US consumer is always looking for cheaper groceries along with new products and Grocery Outlet offers this to them. I’ll discuss this in the next two paragraphs.
Grocery Outlet offers a win-win solution which is why I’m ultimately interested in the business. A win-win solution is a hallmark of a great business. Their sourcing model allows them to be a dedicated brand channel that moves otherwise unsellable merchandise while offering their customers great deals. This is both simple and powerful. You could make the case that they have a network effect too as their sourcing model creates a virtuous cycle suppliers and customers. At their scale they can source an ever-increasing amount of product from brands while offering customers discounted prices they won’t find anywhere else. Everyone wins. I wrote it earlier, but their sourcing model at this scale is unique in the grocery space from what I can tell.
Their sourcing model is flexible. In addition to their sourcing model being a win-win solution, Grocery Outlet can source new or different products as consumer tastes and preferences change. They aren’t controlled by any one brand partner and don’t have long standing contracts with them. What they do have are long standing relationships with these brands. Per slide 16 of their March presentation, they work with established brands like General Mills, Kellog’s, Nestle, Campbell’s, Conagra, Smuckers, KraftHeinz, Mars, P&G and Unilever. They also work with newer brands like Chobani, Newman’s Own, Chosen Foods, Bragg, Blue Buffalo, Dr. Bronners, Humm Kombucha, Pirate’s Booty, Yes To, Chef’s Cut Real Jerky and Quest Nutrition.
Executive Compensation
Grocery Outlet lists Ollie’s Bargain Outlet, Five Below, TJ MAXX, Ross Stores and Burlington as competitors that it is “well positioned” against in the off-price/discount retailing space in the March 2021 Presentation. I think this is a fair comparison as they have more in common with these businesses than a regular grocery store. I say this because Grocery Outlet really does sell discount merchandise (food and drinks) while most grocery stores sell shelf space for competing food and drink brands. I read the most recent proxy statement for the five businesses listed above and Grocery Outlet falls in line with what they’re doing. The proxies are not exactly the same, but there is quite a bit of overlap in how compensation is determined and paid out. I’m not saying that it’s right or wrong. It’s just how it is and what you must accept as a potential investor in the business.
*** Before I go further, I’d like to tell you that I read the entire proxy statement but will only discuss CEO compensation as I think it is the most important and also saves me time from delving into what the other Named Executive Officers make. In general, their compensation follows the CEO in almost every case and that applies in this scenario. If I happen to come across anything unusual about other Named Executive Officers then I will make note of it in other write ups. ***
So what does executive compensation look like for the CEO at Grocery Outlet? The CEO’s total compensation is broken down in to four parts: Base salary, annual incentive plan, performance share units (PSU’S) and restricted stock units (RSU’s). The company states in their most recent proxy that 83% of the CEO’s and 74% of the other NEO’s compensation is “at risk” and tied to the annual incentive plan, PSU’s and RSU’s. Eric Lindberg, Jr.’s base salary for 2020 was $772,500. 60% of the annual incentive plan is based on hitting a target “adjusted EBITDA” figure. “Adjusted EBITDA”, per Grocery Outlet’s most recent 10-K, is calculated as “EBITDA adjusted to exclude share-based compensation expense, purchase accounting inventory adjustments, non-cash rent, asset impairment and gain or loss on disposition, provision for accounts receivable reserves and certain other expenses.” The “adjusted EBITDA” payout is scaled too. If the company hits 95% of the target, then this portion of the annual incentive plan bonus is 50%. If the company hits 110% of adjusted EBITDA, then this portion of the bonus based on adjusted EBITDA goes to 200% where it is capped. The business set their adjusted EBITDA figure to $193.3 million for 2020. Actual adjusted EBITDA was $222.9 million meaning this portion of the annual incentive payout was 200%. The other 40% is based on a percentage increase of comparable store sales growth which in the proxy is listed as 4.20%. This portion of the payout is weighted a bit differently. If the comparable store sales growth was 50% the baseline 4.20% figure, then it would result in a 50% bonus. If sales increased to 200% of the 4.20% baseline figure, then it would result in a 200% bonus payout where it is capped. Actual comparable store sales growth in 2020 was 12.7% meaning he received a 200% bonus on this portion and the total portion of the annual incentive plan. The annual incentive bonus is based on the CEO’s salary which in 2020 was $772,500 which at a 200% bonus payout is $1,545,000.
PSU’s and RSU’s are paid out over three year periods. RSU’s vest in yearly installments and are paid on a predetermined “vesting commencement date” while PSU’s vest at the end of the third year and result in one payment. I’ve read the most recent proxy a few times and I can’t find what the company uses as a metric to grant RSU’s. PSU’s are based 50% on “certain revenue based performance targets” and 50% “certain adjusted EBITDA performance targets”. In case you were wondering, the PSU’s have a sloped payout scale between 50% and 200% like the comparable same store sales growth metric above. I was unable to find the “revenue based performance targets” or “adjusted EBITDA performance targets” were for the PSU’s. Since I cannot find what the “target” figures are for RSU’s and PSU’s, I’m going to assume that the Compensation Committee uses discretion with determining how many should be awarded. This portion of CEO compensation is deemed “Long Term Equity Incentive Compensation” with a 70% weighting to RSU’s and 30% to PSU’s. Both are based on the CEO being employed at Grocery Outlet after those three years so they will not receive them otherwise. From 2018-2020, the CEO made $3,645,806, $4,006,275 and $5,452,022 in total compensation. All of the above executive compensation information was taken from Grocery Outlet’s most recent proxy statement.
As you can see, stock compensation makes up most of the CEO’s pay after subtracting his base salary and annual incentive plan bonus. After reading the rest of the proxy, I think the compensation level for the CEO is reasonable. I don’t see anything that allows him to really game the system from what I’ve read, and the company has a relatively healthy balance sheet so I would be okay with his pay in this instance. I would prefer that they base their bonuses on metrics such as ROE, ROIC, ROIIC, EBIT/EV, etc., but what can I do? Almost all of the other off price / discount stores above base bonuses in some part on “adjusted EBITDA”. One surprisingly positive requirement that I found in the proxy statement is that Grocery Outlet is that the CEO must own 5x of their base salary in stock. They have five years to reach this figure, but I see it as a positive that companies demand that their CEO owns a chunk of stock even if most of their compensation is in stock bonuses. As an added kicker, Mr. Lindberg owns 5.2% of the stock. As of the writing of this document, the market cap of the company is $2.6-$2.7 billion meaning his 5.2% of the company is worth ~$135,000,000. It’s nice to see a CEO who owns a large chunk of his own stock and has skin in the game. Overall, I’d say executive compensation and incentives at Grocery Outlet are okay to decent. It isn’t Constellation Software, but I don’t think they’re ripping their shareholders off either.
Profitability and Valuation
Looking at Grocery Outlet’s March 2021 Presentation presents a rosy history and outlook for the business. From 2015 – 2020 store growth CAGR’d at 14% while “adjusted EBITDA” CAGR’d at 16%. The company increased same store sales every year between 2003 – 2020 although I’m not sure if they’ll do it for 2021. They do almost $3 billion in sales and, as stated above, are only located in six states. They have a good thing going plus a lot of room to grow.
While Grocery Outlet’s sourcing model is exceptional, their IO payout model is the main drag on their financial performance. I will compare Grocery Outlet to Ross and Tj Maxx in this section as they are the picks of the litter in their peer “off price / discount retailer” comparison group. I say this because both have exceptional returns on equity and capital, and have been stock market darlings for a long time. All three businesses have a net debt to equity ratio of less than 1.3. Ross and Tj Maxx’s net debt have spiked over the last two years which I’m going to attribute to Covid because it was a negative figure before that. You may also be wondering why I’m not using Burlington in this scenario. It is because their net debt (total debt minus cash and short term investments) to equity ratio has increased over time and is currently over 4 and approaching 5. I feel like they’re juicing their returns a bit which is fine. It’s just not something I want from most businesses, especially a discount retailer that doesn’t have pricing power. What sticks out about Grocery Outlet is their selling, general and administrative (SGA) expenses as a percentage of net sales. Grocery Outlet provided net sales and selling, general and administrative (SGA) expense information on their 2019 10-K going back to 2015 which I then compared to Ross and Tj Maxx. Tj Maxx’s SGA expense ratio to net sales since 2015 has been right around the 17%-18% figure with a noticeable uptick to 21.8% in 2020 due to a decrease in sales because of COVID. Ross’s SGA expense ratio to sales has been between 14%-15%, but, like Tj Maxx, had a noticeable uptick to 20% during 2020 due to a decrease in sales because of COVID. Grocery Outlet’s SGA expense ratio to net sales has been between 24%-25% every year since 2015. This high SGA expense ratio is due to the IO payouts at least from what I’ve read about the business. I cannot find anything else that would cause this to happen. On each dollar of revenue that comes in Grocery Outlet’s SGA expense ratio to net sales is, at best, 33% (24% / 18%) higher than Tj Maxx’s and 60% (24% / 15%) higher than Ross’. Gross profits for Grocery Outlet from 2015-2020 were (in thousands) $492,216, $561,177, $631,883, $695,297, $787,102, and $973,347 respectively. Since 50% of gross profits go to IO’s that means $246,108, $280,589, $315,942, $347,699, $393,551, and $486,674 went right to expenses and away from profits. The IO Payout, again, in my opinion, is why company has ROE’s and ROIC’s are in the mid-single digits and not the outstanding returns on equity and invested capital that Ross and Tj Maxx do (both average ROE’s and ROIC north of 40% - 50%). This is the main portion of the “drag” I referenced at the beginning of this section. Grocery Outlet’s management needs to work on getting around this to have better returns on equity, capital and higher earnings.
The other, smaller part of the “drag” on their business was a small note that I saw in their most recent 10-K from March of 2021. Grocery Outlet has executed 37 store location leases that they haven’t taken possession of. I’m not sure how much this affects profitability, but it certainly can’t help. My guess is that they are stores they’re going to open during 2021, but my gut tells me 37 stores seems like a lot. I’m also not sure if these stores are included in their store count or not. I emailed their IR department so I will update this writeup if I hear back from them.
Now for valuation. I did a basic free cash flow calculation on Grocery Outlet since they’ve gone public. They provided all three financial statements going back to 2017 so I started from there. I calculate Real FCF as:
Real Operating Cash Flow (ROCF) = Reported OCF – Stock based compensation
I then take out capital expenditures from the Real Operating Cash Flow figure to arrive at Real FCF:
Real Free Cash Flow (RFCF) = ROCF – CapEx
Grocery Outlet is a very capital-intensive business. Their market capitalization as of the writing of this document is ~$2.6 billion meaning it trades at ~140x Real FCF. I don’t envision too many scenarios where I’m comfortable paying this kind of multiple for a business especially one that doesn’t have world beating returns on equity and invested capital.
Final Comments
I wanted this writeup to go better. I wanted the valuation to work out and be reasonable enough for me to invest in. I don’t know how I found out Grocery Outlet, but I thought I had something unique and off the beaten path a bit. I think I was anchored to the idea to some degree, so it was a little painful to dig in and read that the numbers behind the business weren’t as great as I thought. On the positive side, I still think their sourcing model is an advantage and that they’ll be in business for the foreseeable future. On the negative side, their IO Payout agreement unfortunately takes their sourcing advantage away. It eats up too much capital. That’s not to say that Grocery Outlet can’t figure out a way to achieve better returns on equity and invested capital, but they just aren’t doing it right now. I’m also not sure how much of a priority these are for the business as I’ve not seen them mentioned in anything that I’ve watched or read about the business. I’ll keep my eye on this one, but I will not invest in it at this time. On to the next one.